They say that “it is better to light one candle than curse the darkness.” When it comes to spend data, Best-in-Class procurement organizations have taken this old proverb to heart. In fact, Ardent Partners’ recent research has shown that these industry leaders prefer to shine a bright “spotlight” on their work as 77% of them reportedly have enterprise-level spend visibility, compared to just 48% of their peers. With a superior level of spend visibility, the average Best-in-Class procurement organization reports higher levels of annual savings (6.3% vs. 6.1%) and 47% better contract compliance rates than the other groups in the market (66% vs. 45%).
As important, Best-in-Class procurement also source 44% more of their addressable spend and manage a significantly higher percentage of overall enterprise spend (56% versus 39%). But, having spend visibility and using spend visibility to achieve an advantage are two different things. The value of spend analysis is not the data itself, but in the ways that the data is leveraged to inform the decisions that drive greater value and improve performance. Having the spend information organized, classified, and presented is a key first step; but, when it comes to spend visibility, it’s what you do with it that matters.
It is the ability to understand and analyze historical spend information that helps organizations identify critical issues related to pricing, compliance, risk, and supplier performance and it is the sound knowledge of supply markets, pricing trends, and business requirements that help sourcing teams use spend visibility to build and optimize sourcing pipelines for the greatest potential value. By linking spend visibility directly to different procurement processes, enterprises can ensure that important decisions are made using the best available information. By placing the spend data into a usable format and enriching it with pertinent and complementary internal and external information, a spend analysis system can become the hub of procurement operations.
Linking Data to Decisions and Processes
The sourcing teams that utilize fully-automated spend analysis solutions identify more than double the amount of savings on their average sourcing projects than those performing spend analysis in a fully-manual way. Beyond the higher savings that results from the ability to make better, more-informed, data-driven decisions, spend analysis solutions drive process efficiencies across the entire strategic sourcing process. By seamlessly sharing key spend, category, supplier, and supplier performance information with a tightly-integrated eSourcing solution, a standard spend analysis system can sharpen results and improve the overall quality of a sourcing process by ensuring that timely and accurate information is available to a sourcing project’s different stakeholders including the sourcing team, decision-makers, budget holders, and suppliers.
Context in a Data-Driven World
In today’s information-rich and increasingly data-driven world, there is more information available on almost any aspect of business than can reasonably be processed and used. Yet, far beyond the historical transactional and performance data that is captured in an enterprise’s systems of record and often, via spend analysis, presented in a usable reporting and analysis format, relevant information on topics like supply risk, supplier financial performance, and general supplier/product information is becoming widely available in the market. Enriching historical supplier data can help an enterprise develop a much deeper understanding of its strategic trading partners by capturing and presenting timely and relevant information that the enterprise may not otherwise ever see. Whether this information is positive (i.e. business announcements, industry recognition, new product development, etc.) or negative (i.e. supply risk red flags, new litigation, etc.), it ultimately helps the enterprise place its current and potential supplier relationships in better context. Likewise, the ability to capture and present category and/or supply market information and present it alongside actual category spend information can help expand the knowledge of different category teams and enable them to develop more proactive category management strategies.
Enterprises that achieve a comprehensive view into enterprise spend and have the systems, processes, and capabilities to leverage it fully, are much more likely to make smarter sourcing decisions, drive greater value, and improve supplier performance and contract compliance. Ardent recommends the following strategies and approaches for procurement departments seeking to unlock greater value from their spend analysis initiatives:
- Automate the spend analysis process; these tools drive efficiencies and savings.
- Understand that attaining spend visibility is just the starting point. Beyond initial commodity classifications, the ‘true’ value comes from taking action on the data, linking it to key processes, using it to engage stakeholders, and enriching it with vital information.
- Combine spend visibility with supplier and supply market insight to support the sourcing decisions that maximize value and minimize supply risk.